W.P.(C) Nos. 10712 & 10823 of 2013 - Ernakulam District Chitty Formans Association & Naipunya Chits Private Limited v Union of India & others; All Kerala Association of Chit Funds (State Unit) & St. George Chitties (Karakkatt) Private Limited v Union of India & others

W.P.(C) No. 10712 & 10823 of 2013 : 1 : IN THE HIGH COURT OF KERALA AT ERNAKULAM ## PRESENT THE HONOURABLE MR. JUSTICE SHAJI P.CHALY THURSDAY, THE 12[TH] DAY OF JANUARY 2023 / 22ND POUSHA, 1944 ## WP(C) NO. 10712 OF 2013 ## PETITIONER/S: - 1 ERNAKULAM DISTRICT CHITTY FORMANS ASSOCIATION KALOOR TOWERS, KALOOR, COCHIN - 17, REPRESENTED BY ITS PRESIDENT, R.VISWAMBHARAN NAIR. - 2 NAIPUNYA CHITS PRIVATE LIMITED AMBUJA ARCADE CANAL ROAD, NORTH PARAVUR, REPRESENTED BY ITS CHAIRMAN,R.VISWAMBHARAN NAIR. - BY ADV SRI.K.S.BHARATHAN ## RESPONDENT/S: - 1 THE UNION OF INDIA REPRESENTED BY THE SECRETARY, MINISTRY OF FINANCE,NEW DELHI - 110 001. - 2 THE STATE OF KERALA, REPRESENTED BY THE SECRETARY, TAXES (H) DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM 695 001 - 3 THE REGISTRAR OF CHITS, OFFICE OF THE INSPECTOR GENERAL OF REGISTRATION, THIRUVANANTHAPURAM - 695 005. - 4 THE DISTRICT REGISTRAR OF CHITS (ERNAKULAM) OFFICE OF THE DISTRICT REGISTRAR (GENERAL),ERNAKULAM, PIN - 682 016. - 5 THE RESERVE BANK OF INDIA, WORLD TRADE CENTRE COMPLEX, CUFFE PARADE, COLOBA, MUMBAI - 400 005. - 6 THE KERALA STATE FINANCIAL ENTERPRISES, 'BHADRATHA', MUSEUM ROAD, THRISSUR - 680 020, REPRESENTED BY ITS MANAGING DIRECTOR. BY ADVS. MANU S., DSG OF INDIA R2 TO R4 BY SRI. JOBY JOSEPH, SR. GOVERNMENT PLEADER SRI.P.BENNY THOMAS SRI.M.GOPIKRISHNAN NAMBIAR SRI.K.JOHN MATHAI R6 BY SRI. E.K. NANDAKUMAR (SR.) SRI. JAIMON THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 12.01.2023, ALONG WITH WP(C).10823/2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.P.(C) No. 10712 & 10823 of 2013 : 2 : ## IN THE HIGH COURT OF KERALA AT ERNAKULAM ## PRESENT ## THE HONOURABLE MR. JUSTICE SHAJI P.CHALY THURSDAY, THE 12[TH] DAY OF JANUARY 2023 / 22ND POUSHA, 1944 ## WP(C) NO. 10823 OF 2013 ## PETITIONER/S: - 1 ALL KERALA ASSOCIATION OF CHIT FUNDS (STATE UNIT OF THE ALL INDIA ASSOCIATION OF CHIT FUNDS, NEW DELHI) HAVING ITS OFFICE AT ROOM NO. 1, 2ND FLOOR, KALOOR TOWER, KALOOR, COCHIN, REPRESENTED BY ITS PRESENT GENERAL SECRETARY K.P. GEE VARGHESE BABU. - 2 ST. GEORGE CHITTIES (KARAKKATT) PRIVATE LIMITED, KANINADU, PUTHENCRUZ, ERNAKULAM DISTRICT, PIN - 682 310, REPRESENTED BY ITS MANAGING DIRECTOR, K.P. GEEVARGHESE BABU. BY ADV SRI.K.S.BHARATHAN ## RESPONDENT/S: - 1 UNION OF INDIA REPRESENTED BY THE SECRETARY, MINISTRY OF FINANCE, NEW DELHI - 110 001. - 2 THE STATE OF KERALA REPRESENTED BY THE SECRETARY, TAXES (H) DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM - 695 001. - 3 THE REGISTRAR OF CHITS OFFICE OF THE INSPECTOR GENERAL OF REGISTRATION, THIRUVANANTHAPURAM - 695 005. - 4 THE DISTRICT REGISTRAR OF CHITS ERNAKULAM OFFICE OF THE DISTRICT REGISTRAR (GENERAL), ERNAKULAM - 682 016. - 5 THE RESERVE BANK OF INDIA WORLD TRADE CENTRE COMPLEX, CUFFE PARADE, COLOBA, MUMBAI - 400 005. - 6 THE KERALA STATE FINANCIAL ENTERPRISES BHADRATHA, MUSEUM ROAD, THRISSUR - 680 020, REPRESENTED BY ITS MANAGING DIRECTOR. BY ADVS. P.VIJAYAKUMAR R2 TO R4 BY SRI. JOBY JOSEPH, SR. GOVERNMENT PLEADER SRI.P.BENNY THOMAS SRI.M.GOPIKRISHNAN NAMBIAR ## W.P.(C) No. 10712 & 10823 of 2013 : 3 : SRI.K.JOHN MATHAI SRI. MANU S., DSG OF INDIA R6 BY SRI. E.K. NANDKUMAR (SR) SRI. JAIMON THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 12.01.2023, ALONG WITH WP(C).10712/2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.P.(C) No. 10712 & 10823 of 2013 : 4 : ## **SHAJI P. CHALY, J.** --------------------------------------------------------W.P.(C). Nos. 10712 & 10823 of 2013 --------------------------------------------------------Dated this the 12[th] day of January, 2023. ## **JUDGMENT** The petitioners, Chit Companies engaged in the chit business as per the provisions of the Chit Funds Act, 1982 (Central Act) (‘Act, 1982’ for short) and the Kerala Chit Funds Rules, 2012 (‘Rules, 2012’ for short), seeking to quash Exhibits P2 to P5 State Government Orders dated 14.05.2012, 30.05.2012, 29.06.2012 and 24.07.2012, by which the State Government has accorded sanction to the Kerala State Financial Enterprises, a Government Company to commence chitties as per Section 4(1) of the Act, 1982 and for other related and consequential reliefs. 2. W.P.(C) No. 10712 of 2013 is treated as the main case and the parties and exhibits are referred to as in the said writ petition. 3. The Kerala Chitties Act, 1975 (‘Act, 1975’ for short) was in vogue in the State of Kerala. The said Act was repealed later, consequent to the introduction of the Act, 1982; but, the same was not extended to the State of Kerala by issue of notification under Section 1(3) of the Act, 1982. According to the petitioners, W.P.(C) No. 10712 & 10823 of 2013 : 5 : exemption was granted to the State due to the pressure exerted by the Kerala State Financial Enterprises, respondent No.6, which has been finding ways and means to ensure permanent exit of the private players in the chit fund industry in Kerala. It is pointed out by the petitioners that the sixth respondent, which is a miscellaneous non-banking company, is fully owned by the State of Kerala and the Chit business is the main product of the 6[th] respondent. 4. It is further submitted that the 6[th] respondent was exempted from the rigour of the Act, 1975 by issuing a notification by the State of Kerala. Further it is submitted that the Hon’ble Supreme Court in the _**State of Kerala and others v. Mar Appraem Kuri Company Ltd. and others**_ [(2012) 7 SCC 106] held that the Act, 1975 is void and inoperative on the enactment of the Act, 1982. According to the petitioners, in terms of Section 4(1) of the Act, 1982, sanction of the State Government or empowered officer and registration of the chit are mandatory for commencing and conducting a chit; and that the procedure for obtaining sanction and securing registration is prescribed in the Rules, 2012 by the Government Order bearing No. G.O.(P) No. 94/2012/TD notified on and with effect from 04.06.2012, and the power to grant sanction is delegated exclusively to the Deputy Registrar of chits in each W.P.(C) No. 10712 & 10823 of 2013 : 6 : District. 5. The grievance highlighted by the petitioners is that the Kerala State Financial Enterprises, which is an entity of the State Government, has been granted sanction by the State Government purportedly under the Act without following the procedure prescribed under law. It is the case of the petitioners that the first sanction was granted on 14.05.2012 on the basis of a letter dated 11.05.2012 and not on application in the manner prescribed by the Rules; that no enquiry has been conducted on the request for sanction as mandated under law; that 11.05.2012 was a Friday and 12.05.2012 was a second Saturday and 13.05.2012 was a Sunday which were all holidays; and that Exhibit P2 order is issued on 14.05.2012. Therefore, according to the petitioners, the order was issued on the next day of the application without conducting any enquiry in contemplation of the law discussed above. 6. Similar contentions are also raised with respect to the other Government orders. The sum and substance of the contention advanced by the petitioners is that the practice followed by the 6[th] respondent appears to be that a list of chits proposed to be commenced along with a copy of the sanction order are submitted to the respective officers and the Registration Department, which is treated as a sufficient compliance of the registration requirements W.P.(C) No. 10712 & 10823 of 2013 : 7 : prescribed under the Act. 7. In order to demonstrate the same, petitioners have produced Exhibit P6, details of chitties proposed to be registered by 31.05.2012 with the Sub Registrar, Ayyanthole. The predominant contention advanced by the petitioners is that the action of the 6[th] respondent violates Section 13(3) of the Act, 1982. It is also contended that the aggregate chit amount of the chits conducted by the 6[th] respondent far exceeds 10 times its net owned assets, which violates Section 13 (3) of the Act 1982. The petitioner has also produced Exhibit P7, the published balance sheet for the period 2009-2010, to show that the net owned funds of the 6[th] respondent i.e., the aggregate of paid up capital and free reserves is Rs.20,00,00,000/- + Rs.1,47,86,65,632/- = Rs.1,67,86,65,632/(approximately Rs.167.86 crores), and therefore it is contended that there is clear violation of the above said provision. 8. It is further contended that the aggregate chit amount of the chits conducted by the 6[th] respondent as per the balance sheet was Rs.5,152.2 Crores. In the above background, it is contended that even the 6[th] respondent is conducting chits nearly five times the limit prescribed by law and that even if the 6[th] respondent is a State Government Company, it is duty bound to follow the provisions of the Act, 1982 and the Rules, 2012. According to the W.P.(C) No. 10712 & 10823 of 2013 : 8 : petitioners, even Exhibits P4 and P5 Government Orders would show that it is issued after the Rules, 2012 has come into force, and therefore, it is contended that the sixth respondent has not followed the statutory requirements of the Act, 1982 and the Rules, 2012. 9. The 6[th] respondent has filed a detailed counter affidavit in W.P.(C) No. 10712 of 2013 refuting the allegations and inter alia contending that as per Section 4(1) of the Act, 1982, the State Government or any such officer empowered in that behalf by the Government is the authority to grant sanction for conducting chitties in the State and therefore, the Government has absolute jurisdiction and power to grant sanction for conducting chitties. It is also pointed out that the 6[th] respondent has submitted the requisite application to the Government for obtaining sanction under Section 4(1) of the Act, 1982; and the Government, after due consideration of the said application, granted permission to the 6[th] respondent to conduct the chitty transaction in the State and therefore, the chitties conducted by the 6[th] respondent based on sanction from the Government is valid in law. The sum and substance of the contention advanced by the 6[th] respondent is that the application submitted by the 6[th] respondent is in substantial compliance with the provisions contained in the Act, 1982 and the Rules, 2012. 10. That apart, it is contended that, at the time of issuance of W.P.(C) No. 10712 & 10823 of 2013 : 9 : Exhibits P2 and P3, Rules, 2012 was not notified. It is further submitted that the 6[th] respondent was always obtaining registration for conducting chits. The other contentions advanced by the petitioner with respect to the attempt of the 6[th] respondent to create monopoly in the chit business are all denied by the 6[th] respondent. 11. I have heard the learned counsel for the petitioners Sri. K.S Bharathan, learned Senior Government Pleader Sri. Joby Joseph for the State and its officials and the Senior Advocate Sri. E. K. Nandakumar for the KSFE assisted by Sri. Jaimohan, and perused the pleadings and material on record. 12. Respective counsel has advanced arguments based on the pleadings deliberated above. In order to arrive at a logical conclusion, the discussion of certain provisions of the Act, 1982 and the Rules, 2012 are necessitated. 13. Section 2(j) defines “foreman” to mean the person who under the chit agreement is responsible for the conduct of the chit and includes any person discharging the functions of the foreman under section 39. Therefore, it is clear that there is no distinction by and between a private chitty company owner and the Government company conducting chit business. The case projected by the 6[th] respondent is that it is following the provisions of the Act, W.P.(C) No. 10712 & 10823 of 2013 : 10 : 1982 and the sanction is being sought from the State Government for conducting chits as and when they are insisted. 14. Section 4(1) of the Act, 1982 reads thus: - “4. Prohibition of chits not sanctioned or registered under the Act. —(1) No chit shall be commenced or conducted without obtaining the previous sanction of the State Government within whose jurisdiction the chit is to be commenced or conducted or of such officer as may be empowered by that Government in this behalf, and unless the chit is registered in that State in accordance with the provisions of this Act.” 15. On an analysis of the said provision and correlating the same with Exhibits P2 to P5 Government Orders, it is clear that the Government has accorded sanction to the 6[th] respondent to conduct chitties during the said period. Section 13 deals with ‘aggregate amount of chits’, and it reads thus: - “13. Aggregate amount of chits.—(1) No foreman, other than a firm or other association of individuals or a company or cooperative society, shall commence or conduct chits, the aggregate chit amount of which at any time exceeds [rupees one lakh]. - (2) Where the foreman is a firm or other association of individuals, the aggregate chit amount of the chits conducted by the firm or other association shall not at any time exceed,— - (a) where the number of partners of the firm or the individuals constituting the association is not less than four, a sum of rupees [six lakhs]; W.P.(C) No. 10712 & 10823 of 2013 : 11 : (b) in any other case, a sum calculated on the basis of [rupees one lakh] with respect to each such partner or individual. (3) Where the foreman is a company or co-operative society, the aggregate chit amount of the chits conducted by it shall not at any time exceed ten times the net owned funds of the company or the co-operative society, as the case may be. Explanation.—For the purposes of this sub-section, “net owned funds” shall mean the aggregate of the paid-up capital and free reserves as disclosed in the last audited balance sheet of the company or co-operative society, as reduced by the amount of accumulated balance of loss, deferred revenue, expenditure and other intangible assets, if any, as disclosed in the said balance-sheet.” 16. The learned counsel for the petitioners has heavily relied upon Section 13 of the Act, 1982 to contend that the Kerala State Financial Enterprises has violated the aggregate amount of chits prescribed under Section 13 of the Act, 1982. It is further pointed out that the requirements contained under Sections 19 and 20 of the Act, 1982 dealing with the restriction of opening of new places of business and security to be given by the foreman, are all not followed by the Kerala State Financial Enterprises. 17. However, it is the contention of the learned Senior Counsel for the Kerala State Financial Enterprises that it has filed W.P.(C) No. 10712 & 10823 of 2013 : 12 : appropriate applications in order to comply with the requirements contained under the Act, 1982 and the Rules 2012. It is also pointed out that the petitioners could not point out any specific instances where the provisions of the Act, 1982 are not followed by the Kerala State Financial Enterprises. 18. The learned counsel for the petitioners has also relied upon Rule 4 of the Rules, 2012 dealing with ‘application for obtaining previous sanction for commencement or conduct of chit’, which stipulates that subject to the procedure laid down in Rules 19 and 20, every application for obtaining previous sanction for the commencement or conduct of a chit under Section 4 of the Act shall be in Form I and shall be addressed to the Deputy Registrar of Chits of the District concerned. Other procedures are also prescribed thereunder. 19. The learned counsel for the petitioners has also relied upon sub-Rule 2 of Rule 4, which stipulates that the Assistant Registrar of Chits shall, on receipt of the application, forward two copies each of the application, the balance sheet and the statement of accounts if any, to the Deputy Registrar of Chits of the District with his remarks, and the Deputy Registrar, as per sub-Rule (3) of the Rules, 2012 shall send a copy each of the application and the said documents to the Inspector of Chits of the District, for ## W.P.(C) No. 10712 & 10823 of 2013 : 13 : ## verification, enquiry and report. 20. The learned counsel has also relied upon sub-Rule (4) of Rule 4 of the Rules, 2012 to contend that the Inspector of Chits shall make necessary enquiries and submit a concrete report containing his specific remarks and recommendations as to the eligibility/fitness or otherwise of the case for sanction, to the Deputy Registrar of Chits. Other contentions are also raised relying upon the said rule. 21. The sole question to be considered is whether any interference is required to the orders passed by the Government. The orders passed by the Government according sanction to the Kerala State Financial Enterprises Limited shows that the Company is accorded with sanction to commence chits as per the details appended by various branches of the company during a particular period. 22. According to the petitioners, after the introduction of the Rules, 2012, enquiries are contemplated when registration is sought for. However, in my considered opinion, the petitioners have not pointed out any specific instances with respect to the violation of the provisions of the Act or the Rules. 23. It may be true that Exhibits P4 and P5 orders are issued by the Government immediately after introducing the Rules, 2012. W.P.(C) No. 10712 & 10823 of 2013 : 14 : But, now 11 years have elapsed after the passing of the said orders. The chitty period itself might be over and nothing survives to be adjudicated on its merit. In that view of the matter, I do not think, the petitioners are entitled to get the reliefs sought for to quash Exhibits P2 to P5 orders passed by the State Government. 24. Accordingly I am of the view that, writ petitions can be disposed of recording the above aspects. Accordingly, I do so. However, I make it clear that if the petitioners find that any registration is granted to the Kerala State Financial Enterprises Limited without following the procedure contemplated under the Act, 1982 and the Rules, 2012, it is for the petitioners to pursue any remedy before the appropriate statutory authority. Since the petitioners have not established any specific instance that the chits commenced by the 6[th] respondent after 30.04.2012 are illegal or void, no such omnibus declaration can be made by this Court. 25. So also, no writ of mandamus can be issued to the respondents restraining the 6[th] respondent from commencing or conducting any new chit, especially due to the fact that Exhibits P2 to P5 produced by the petitioners would show that sanction was accorded by the State Government to conduct chits by the Kerala State Financial Enterprises, and the contentions advanced on the basis of the same have become inconsequential and redundant. ## W.P.(C) No. 10712 & 10823 of 2013 : 15 : Therefore, the petitioners are not entitled for any reliefs as sought for in the writ petition, and accordingly they are declined. However, it is made clear that the liberty of the petitioners to raise objection to any Chitty conducted by the sixth respondent without following the legal formalities is left open. Writ Petitions are disposed of as above. sd/- **SHAJI P. CHALY, JUDGE.** Rv ## W.P.(C) No. 10712 & 10823 of 2013 : 16 : ## **APPENDIX OF WP(C) 10712/2013** |PETITIONERS’ EXHIBITS:|| |---|---| |P1|TRUE COPY OF THE RENEWAL CERTIFICATE DATED| ||14.10.2022 ISSUED BY THE OFFICE OF THE DISTRICT| ||REGISTRAR (GENERAL) DATED 30.04.2012 S.O.950(E)| |P2|EXT.P-2 TRUE COPY OF THE G.O(RT) NO.351/12/TD| ||DATED 14.5.2012 ISSUED BY RESPONDENT NO.2| |P3|EXT.P-3 TRUE COPY OF THE G.O(RT) NO.397/12/TD| ||DATED 30.5.2012 ISSUED BY RESPONDENT NO.2| |P4|EXT.P-4 TRUE COPY OF THE G.O(RT) NO.463/2012/TD| ||DATED 29.6.2012 ISSUED BY RESPONDENT NO.2| |P5|EXT.P-1 TRUE COPY OF THE NOTIFICATION DATED| ||24.07.2012 ISSUED BY RESPONDENT NO.2.| |P6|EXT.P-6 TRUE COPY OF THE DETAILS OF CHITTIES| ||PROPOSED TO BE REGISTERED IN 31.5.2012 DATED| ||NIL.| |P7|EXT.P-7 TRUE COPY OF THE RELEVANT PAGES OF| ||NOTICE TO SHARE HOLDERS AND BALANCE SHEET OF| ||RESPONDENT NO.6 DATED 17.8.2011| |P8|EXT.P-8 TRUE COPY OF THE ADVERTISEMENT TAKEN| ||OUT BY RESPONDENT NO.6 IN MATHRUBHUMI DAILY| ||DATED 13.8.2012.| |P9|TRUE COPY OF RENEWAL CERTIFICATE DATED| ||14.10.2022 ISSUED BY THE OFFICE OF THE DISTRICT| ||REGISTRAR (GENERAL) DATED 14.10.2022.| ## RESPONDENTS’ EXHIBITS: NIL True Copy PS to Judge. rv : 17 : ## W.P.(C) No. 10712 & 10823 of 2013 ## **APPENDIX OF WP(C) 10823/2013** |PETITIONERS’ EXHIBITS:|| |---|---| |P1|EXHIBIT-P1-TRUE COPY OF THE NOTIFICATION DATED| ||30/04/2012 NO. S.O. 950 (E)| |P2|EXHIBIT-P2-TRUE COPY OF THE G.O(RT)| ||NO.351/12/TD DATED 14/05/2012 ISSUED BY| ||RESPONDENT NO.2| |P3|EXHIBIT-P3-TRUE COPY OF THE G.O (RT) NO.| ||397/12/TD DATED 30/05/2012 ISSUED BY| ||RESPONDENT NO.2| |P4|EXHIBIT-P4-TRUE COPY OF THE G.O(RT) 463/2012/TD| ||DATED 29/06/2012 ISSUED BY RESPONDENT NO.2| |P5|EXHIBIT-P5-TRUE COPY OF THE G.O(RT) NO.| ||530/12/TD DATED 24/07/2012 ISSUED BY| ||RESPONDENT NO.2.| |P6|EXHIBIT-P6-TRUE COPY OF THE DETAILS OF CHITTIES| ||PROPOSED TO BE REGISTERED IN 31/05/2012 DATED| ||NIL.| |P7|EXHIBIT-P7-TRUE COPY OF THE RELEVANT PAGES OF| ||NOTICE TO SHARE HOLDERS AND BALANCE SHEET OF| ||RESPONDENT NO. 6, DATED 17/08/2011.| |P8|EXHIBIT-P8-TRUE COPY OF THE ADVERTISEMENT| ||TAKEN OUT BY RESPONDENT NO. 6 IN MATHRUBHUMI| ||DAILY DATED 13/08/2012.| ## RESPONDENTS’ EXHIBITS: NIL rv True Copy PS to Judge.